MBA outlines recommendations for GSE reform

The Mortgage Bankers Association (MBA) released a paper outlining its recommended approach for secondary mortgage market reform, with the objective of ending the conservatorship of Fannie Mae and Freddie Mac (the GSEs) and establishing a new, durable foundation for the secondary mortgage market. Specifically, this paper outlines a preferred end-state, the principles that should be incorporated in any future system, the key components and guardrails of the end-state, and emphasizes the need to ensure a smooth transition to a reformed secondary mortgage market.

The paper is derived from the work of MBA’s Task Force for a Future Secondary Mortgage Market. The Task Force considered the benefits and drawbacks of many potential models in developing its recommendation. It concluded by reaffirming an end-state that would encourage multiple guarantors, which is consistent with MBA’s previous recommendation. The guarantors would be organized as privately-owned utilities with a regulated rate of return. Guarantors could purchase from a newly created insurance fund an explicit federal guarantee on a defined class of eligible securities. The guarantee would only be for the securities and not the entities issuing them. The entities would have a public purpose of providing sustainable credit availability to the conventional single family and multifamily mortgage market and providing equitable access to lenders of all sizes and business models. To address underserved markets nationwide, the entities would be responsible for executing an affordable housing strategy to ensure broad access to credit.

MBA will elaborate on all of these concepts in its full paper, anticipated in April, and will also include more detailed end-state reform recommendations including a comprehensive transition plan and affordable housing strategy.

“Today’s paper is intended to provide thoughtful recommendations on how to reform the GSEs while ensuring a healthy, robust secondary mortgage market emerges for both single-family and multifamily mortgages,” said Rodrigo Lopez CMB, Executive Chairman of NorthMarq Capital and Chairman of MBA. “The U.S. mortgage market requires global capital in order to maintain adequate liquidity through all economic cycles. International and institutional investors will only fill that role if there is an explicit government guarantee on the securities, something that can only be obtained by congressional action.”

“As a mid-size lender, it is critical to me that this paper addresses several key issues, namely that it ensures equal market access for lenders of all sizes and business models, and that it maintains a deep, liquid market for long-term financing options.” said Hank Cunningham, President of First Mortgage Company, LLC, and a Task Force Member.

“This paper was developed with an eye toward serving the broadest range of housing options, and thus includes both single- and multifamily approaches for homeowners and renters,” said Mike May, BPC Executive Managing Director-Vice Chairman CCRE National Head of Multifamily and a Task Force Member.

The members of the task force are made up of individuals from MBA member companies representing a broad cross-section of the residential and multifamily real estate finance industries, including entities of varying sizes and business models.